© Copyright 2006 by the Wyoming Department of Employment, Research & Planning


Vol. 43 No. 3

Made in China

by: Roy Azar, Economist

This article is a summary of a report entitled, “Manufacturing Employment and Compensation in China.” The report was prepared by Judith Banister, a consultant with Beijing Javelin Investment Consulting Company. The Bureau of Labor Statistics (BLS) funded the original paper. It can be found at http://www.bls.gov/fls/chinareport.pdf.

The purpose of this report is to evaluate the quality of data that the Chinese government published on manufacturing employment and labor compensation between the years 1990 and 2002. The statistics the Chinese government released on annual wages and labor-related employer expenditures are just enough to calculate 2002 annual pay for 30 million city manufacturing employees and 71 million non-city manufacturing employees. By using published partial data and some assumptions, Banister was able to approximate average 2002 hourly wages for these two groups and for China as a whole. Wages were converted into U.S. dollars at the 2002 exchange rate and adjusted for the international purchasing power parity (PPP). The PPP allows for a standard comparison of real price levels between China and the U.S. According to the report, all of China’s manufacturing employees in 2002 received an average of $0.57 per hour worked.

The study also discusses some of the major problems that occur with the concentrated data collection on city manufacturing workers, rather than the more numerous manufacturing workers outside cities. Furthermore, the data collection techniques on city workers need revision. The Chinese Ministry of Labor and Social Security and the National Bureau of Statistics concentrate their data collection greatly on the declining state-owned and urban collective-owned manufacturing firms. China is slow to adapt its data gathering methods to effectively reflect the flourishing private manufacturing sector. Most of China’s manufacturing workers live and work outside cities, and the responsibility for collecting data on this group lies with the Ministry of Agriculture. The government-mandated economy (i.e., command economy) of pre-1978 is responsible for this separation of statistical duties in China.

Banister mentions some of the problems that are linked with certain Chinese governmental policies and their data collection system which often lead to skewed results. There are several financial reasons why a Chinese manufacturing firm would underreport total wages and employee counts. Manufacturing companies underreport this data in order to evade taxes and to reduce government-required employer payments to social insurance and employee housing programs.

Manufacturing employment in China was growing throughout the 1980s and the beginning of the 1990s. Not until the mid-1990s did manufacturing employment begin to decrease. This decrease in employment was due to privatization, which in turn led to a restructuring of the entire manufacturing industry. Privatization in the manufacturing industry led to massive layoffs and a great increase in productivity. The newly privatized factories are outperforming the state-owned and collective-owned factories, and therefore, are more competitive in the global and domestic markets. Manufacturing employment began to increase again in 2002. This recent increase is due to more investments by foreign and domestic businesses.

The report ends with factors that help make China both more and less competitive in the global market. It also suggests areas of future research for the Chinese government regarding ways to improve their data. China has many advantages that make the country suitable for foreign investment: It has very inexpensive labor costs, low land prices, and low-cost parts suppliers. China also has a stable government that offers favorable tax policies to foreign investors. Some factors hindering China’s competitiveness in the future include electric power shortages, raw material shortages, and a lack of trademark, copyright, and patent protection. In addition, China has an ineffective legal system that is slow to enforce business contracts. Banister believes a higher priority should be placed on collecting more accurate data on the actual hours worked by manufacturing workers and researching wages received by rural workers in the manufacturing sector. Lastly, Banister contends China needs to adopt a labor force survey, based on international standards, that covers the entire country. Due to the quality of labor data published by China, the Bureau of Labor Statistics (BLS) will not include China in its comparative foreign labor statistics program.

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